Wendellâs Donut Shoppe is investigating the purchase of a new$50,100 donut-making machine. The new machine would permit thecompany to reduce the amount of part-time help needed, at a costsavings of $5,900 per year. In addition, the new machine wouldallow the company to produce one new style of donut, resulting inthe sale of 2,600 dozen more donuts each year. The company realizesa contribution margin of $1.60 per dozen donuts sold. The newmachine would have a six-year useful life.
Required:
What would be the total annual cash inflows associated with thenew machine for capital budgeting purposes?
Annual savings in part-time help
Added contribution margin from expanded sales
Annual cash inflows
2.
Find the internal rate of return promised by the new machine tothe nearest whole percent.
Internal Rate of Return
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Factor
Number of years
Internal rate of return
Investment Required
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Annual Cash Inflow
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%
In addition to the data given previously, assume that themachine will have a $19,000 salvage value at the end of six years.Under these conditions, compute the internal rate of return to thenearest whole percent. (Round your final answer to nearestwhole percentage.)
Internal rate of return
%
Wendellâs Donut Shoppe is investigating the purchase of a new$50,100 donut-making machine. The new machine would permit thecompany to reduce the amount of part-time help needed, at a costsavings of $5,900 per year. In addition, the new machine wouldallow the company to produce one new style of donut, resulting inthe sale of 2,600 dozen more donuts each year. The company realizesa contribution margin of $1.60 per dozen donuts sold. The newmachine would have a six-year useful life. |
Required: | |||||||||||||
What would be the total annual cash inflows associated with thenew machine for capital budgeting purposes? | |||||||||||||
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2. | Find the internal rate of return promised by the new machine tothe nearest whole percent. | ||||||||||||||||||||||||||||||||||||
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In addition to the data given previously, assume that themachine will have a $19,000 salvage value at the end of six years.Under these conditions, compute the internal rate of return to thenearest whole percent. (Round your final answer to nearestwhole percentage.) | ||||||||
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Related questions
Wendellâs Donut Shoppe is investigating the purchase of a new$42,800 donut-making machine. The new machine would permit thecompany to reduce the amount of part-time help needed, at a costsavings of $5,700 per year. In addition, the new machine wouldallow the company to produce one new style of donut, resulting inthe sale of 2,500 dozen more donuts each year. The company realizesa contribution margin of $1.50 per dozen donuts sold. The newmachine would have a six-year useful life.
| . | 1.What would be the total annual cash inflows associated withthe new machine for capital budgeting purposes? Annual savings in part time help= Added contribution margin from expanded sales= Annual Cash inflows=
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Wendellâs Donut Shoppe is investigating the purchase of a new$40,000 donut-making machine. The new machine would permit thecompany to reduce the amount of part-time help needed, at a costsavings of $5,200 per year. In addition, the new machine wouldallow the company to produce one new style of donut, resulting inthe sale of 2,000 dozen more donuts each year. The company realizesa contribution margin of $2.40 per dozen donuts sold. The newmachine would have a six-year useful life.
| 1. | What would be the total annual cash inflows associated with thenew machine for capital budgeting purposes? Annual Savings in Part time Help: Added Contribution Margin from expanded sales: Annual cash inflows:
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